Initial Thoughts on RRD-QW Shotgun Marriage Proposal
I nearly choked on my Coke this morning when the news came down that RR Donnelley (RRD) had made a pretty straightforward offer of $1.35 billion in cash and stock to acquire Quebecor World (QW). Here are my initial thoughts which, in this age of instant information, may change with the revelation of more facts. In other words, my good people, I reserve the right to backpedal off whatever's written here and replace this blog with the latest adventures of Marmaduke. For brevity's sake, I will use obvious acronyms.
For one, RRD is striking at a very curious time. Its net earnings crashed 92 percent last month...where are they finding all of this free cash to offer? These guys had $4.4 billion in debt as of December 31, 2008. But the final offer, be it $1.35 billion or $2.2 billion, is likely to force the bankruptcy court's hand. Rough ballparking, the current offer represents 25 percent of sales. Can they do better? To quote Sarah Palin, "You betcha." As for the actual owners of QW...as far as I can tell, they get nothing.
Much smarter people than I have assessed that RRD can past muster with the Hart-Scott-Rodino Act in the states and its equivalent north of the border, Competition Act Canada. Is there any doubt that RRD would boast big dog status in catalogs, long-run books and pubs? We're talking a $16 billion combined company. RRD is Boardwalk, QW is Park Place. All that's missing is the mustachioed man in the black top hat.
Not to start a scare among QW and RRD employees, but such a marriage would undoubtedly entail elimination of redundancy. This is definitely a forward-looking statement, but I think upwards of 10,000 people could lose their jobs. Low end, maybe 6,000 or 7,000 are cut loose. Even the most optimistic would peg it at 4,000 to 5,000. We won't even look at cynical figures. Capacity would have to go away.
Look at the bright side. The elimination of QW enables stronger pricing stands in those areas. RRD can dictate (and beef up) pricing. But I've gotta wonder. Somewhere in Sussex, WI, what is Joel Quadracci—chief exec of Quad/Graphics—thinking and feeling about this proposal? Competition-wise, he would be looking into the mouth of the monster.
This proposed deal and the recession are triggering major changes in the printing industry. Change is and will be thrust upon us, whether we care to see it or not. Stay tuned.